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Cameron in no-win EU budget dilemma

As David Cameron prepares for a crunch summit to set EU spending limits to the end of the decade, it emerged that British taxpayers could end up handing over more cash to Brussels, even if the total budget is frozen or even cut.

The Prime Minister has said he will insist on at least a freeze, and preferably a cut, in the total EU budget for 2014-20 when leaders of the 27 member-states meet in Brussels on Thursday.

He faces stiff resistance from countries which are overall winners from the way EU money is shared out - mostly poorer countries in the south and east of Europe - as well as the European Commission, which is arguing for a significant increase in its budget. But the complicated formula under which Britain's rebate is calculated means that even if Mr Cameron achieves his goal, the UK's net contribution to the EU could rise.

Negotiated by Margaret Thatcher in the 1980s, the rebate effectively compensates the UK for the fact that it receives relatively little support under the Common Agricultural Policy (CAP), compared to similarly sized economies such as France. The rebate is currently worth around 3.6 billion euros (£2.9 billion), and meant that Britain's net contribution in 2010 was 7.3 billion euros (£5.9 billion) rather than 10.9 billion (£8.8 billion).

Any cut in the EU's overall budget would be likely to involve a reduction in the CAP - which is one of Europe's largest spending areas - which would trigger a recalculation of the rebate.

Under a separate deal agreed at the time of EU enlargement, the contributions of wealthier states like Britain have also risen each year to help pay for the cost of absorbing poorer countries from the former Soviet bloc.

Mr Cameron has promised to protect the rebate, but he also faces proposals from European Council president Herman van Rompuy to reform the so-called "Own Resources" system determining how much each individual country pays towards the EU's budget, which could reduce its value.

Mr van Rompuy has tabled proposals to put a ceiling of 973 billion euros (£783bn) - at 2011 values - on the amount the EU can commit to spending over the seven years between 2014 and 2020. This would represent a real-terms reduction compared to the 993bn euro (£799bn) limit for 2007-13 and is well below the Commission's request for 1,033bn euros (£831bn) - also both at 2011 values.

However, the council president has not put a figure on the maximum amount which could actually be spent, which tends to come in rather lower than the commitment ceiling, and was 943bn euros (£759 billion) over the period 2007-13.

Mr Cameron's goal for the summit is a freeze or cut in the actual amounts to be spent by the EU, rather than in the commitment level or in the UK contributions. A government spokesman said: "We are looking to get the best deal for the UK taxpayer. That means holding down the total level of spending and protecting the UK's rebate."

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